Practice Final 4 (with answers)

Practice Final 4 (with answers) - Name Student ID Number...

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Name:_____________________________________ Student ID Number:__________________________ University of Michigan School of Business Administration Final Exam For the short answer, make sure you show all of the work I need to see to see how you arrived at your answer. When asked to answer a question in prose, write a clear, SHORT, yet complete answer. Do not write down everything you ever heard said in class.
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Multiple Choice: Choose the BEST answer (5 points each) 1. Due to the recent performance of the stock market, the income levels of individuals has risen dramatically, increasing the demand for cars. In the short run, we would expect that a. Car producers will be earning zero economic profits b. The quantity of cars sold will increase c. The number of cars each firm produces will decrease d. All of the above e. Both A and B are correct 2. Some health insurance companies require that applicants take a physical exam and the insurance company will not provide coverage for any pre-existing conditions discovered during this exam. The social benefits (as measured by the sum of producer and consumer surplus) of such a policy are likely to be greater as: a. the elasticity of demand increases b. the elasticity of supply increases c. the elasticity of demand decreases d. the elasticity of supply decreases e. none of the above 3. The recent headline in the Ann Arbor News, “Record high corn crop leaves farmers smiling”, suggests that farmers think that the demand for corn is a. income elastic b. income inelastic c. price elastic d. unit price elastic e. price inelastic 4. Principle-agent problems in operating firms are more likely to arise if a. managers’ performance can be easily evaluated relative to competitors b. the owners manage the firm c. a few shareholders own most of the outstanding shares d. the managers earn little salary but earn big bonuses if the firm makes a large profit e. managers are protected from hostile takeovers 5. Dorothy Com has decided against the web page that lists menus for local restaurants. Instead, she now plans to run a carpet cleaning business – she has heard great things about it. She is starting small by investing $10,000 in a truck that is going to be painted and loaded with equipment that is specific to her. She has already purchased the truck and made the adjustments to it. She believes the truck would only be worth about $5000 to someone else. Recall that she could earn 10% on that money if she invested it elsewhere and she was earning $20,000 a year in her old job. If she receives revenues of $30,000 a year, what are her economic profits? (Assume there is no other relevant information about her costs) a. $9,000 b. $10,000 c. $9,500 d. $5,000 e. $4,500
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6. Two firms, each with two strategic choices with regard to market entry, are currently competing in a market. The profits associated with each possible outcome of this game are listed below. Firm B
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This note was uploaded on 04/02/2008 for the course BE 300 taught by Professor Masten during the Fall '07 term at University of Michigan.

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Practice Final 4 (with answers) - Name Student ID Number...

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